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What role does happiness play in labor market policy?

Policymakers have recognized that if they can determine the root cause of people’s happiness then they can better tailor their policy aims to the real requirements of society. Globally, happiness has become a hot topic, with everyone from governments to the UN placing increased weight on encouraging well-being at both national and international level.

Happiness is key to a productive economy, and a
job remains key to individual happiness, also under robotization

Measures of individual happiness, or well-being,
can guide labor market policies. Individual unemployment, as well as the
rate of unemployment in society, have a negative effect on happiness. In
contrast, employment protection and un-employment benefits or a basic income
can contribute to happiness—though when such policies prolong unintended
unemployment, the net effect on national happiness is negative. Active labor
market policies that create more job opportunities increase happiness, which
in turn increases productivity. Measures of individual happiness should
therefore guide labor market policy more explicitly, also with substantial
robotization in production.

Why do different population groups (e.g. rural
vs. urban, youth vs. elderly and men vs. women) experience the same
objective labor status differently? One hypothesis is that people are more
concerned with relative deprivation than objective deprivation and they
value their own status relative to the status of their peers—the reference
group. One way to test this hypothesis in the labor market is to measure
individual differences in labor status while controlling for characteristics
that define population groups. This measure is called “relative labor
deprivation” and can help policymakers to better understand how labor claims
are generated.

GDP summarizes only one aspect of a country’s
condition; other measures in addition to GDP would be valuable

Gross domestic product (GDP) is the key
indicator of the health of an economy and can be easily compared across
countries. But it has limitations. GDP tells what is going on today, but
does not inform about sustainability of growth. It does not measure
happiness, so residents can be dissatisfied even when GDP is rising. GDP
does not consider environmental factors or reflect what individuals do
outside paid employment. It might increase in times of military conflicts
and after natural disasters or terrorist acts, as the loss of property is
not counted. Hence, complementary measures may help to show a more
comprehensive picture of an economy.

With modern psychological therapy, mentally ill
people can become more productive and more satisfied with life

In a typical country, one in five people suffers
from a mental illness, the great majority from depression or crippling
anxiety. Mental illness accounts for half of all illness up to age 45 in
rich countries, making it the most prevalent disease among working-age
people; it also accounts for close to half of disability benefits in many
countries. Mentally ill people are less likely to be employed and, if
employed, more likely to be out sick or working below par. If mentally ill
people received treatment so that they had the same employment rate as the
rest of the population, total employment would be 4% higher, adding many
billions to national output.

Firms’ concerns about the well-being of their
employees are largely supported by the evidence

Recently, large companies like Google have made
substantial investments in the well-being of their workers. While evidence
shows that better performing companies have happier employees, there has
been much less research on whether happy employees contribute to better
company performance. Finding causal relations between employee well-being
and company performance is important for firms to justify spending corporate
resources to provide a happier work environment for their employees. While
correlational and laboratory studies do find a positive relationship, the
evidence remains sparse.

Job satisfaction is important to well-being, but
intervention may be needed only if markets are impeded from improving job
quality

Many measures of job satisfaction have been
trending downward. Because jobs are a key part of most people’s lives,
knowing what makes a good job (job quality) is vital to knowing how well
society is doing. Integral to worker well-being, job quality also affects
the labor market through related decisions on whether to work, whether to
quit, and how much effort to put into a job. Empirical work on what
constitutes a good job finds that workers value more than wages; they also
value job security and interest in their work. Policy to affect job quality
requires information on the cost of the different aspects of job quality and
how much workers value them.